a ban on all goods exported from Canada to Myanmar,
excepting only the export of humanitarian goods;

a ban on all goods imported from Myanmar into Canada;

a freeze on assets in Canada of any designated Myanmar
nationals connected with the Myanmar State;

a ban on new investment in Myanmar by Canadian persons and
companies;

a prohibition on the provision of Canadian financial
services to and from Myanmar;

a prohibition on the export of any technical data to Myanmar;

a prohibition on Canadian-registered ships or aircraft
from docking or landing in Myanmar; and

a prohibition on Myanmar-registered ships or aircraft from
docking or landing in Canada and passing through Canada.

The above sanctions were lifted, but persons in Canada and Canadians abroad are still barred from commercial dealings with 44 companies and 38 persons, mainly Myanmar army generals and associates from the former military government, and their companies. A Canadian arms embargo also remains in effect.

Again like the EU, Canadian sanctions are administratively based and so more flexible in their implementation and removal. Further lifting of US sanctions will take significant time, probably months, because legislation and the US Congress is involved.

a ban on the export of
equipment and technology for enterprises involved in the above industries;

a ban on loans,
investment or joint ventures in the above industries;

a ban on non-humanitarian
aid or development programs, other than
human rights/civil society support, health and education or environmental
programs.

The revised
Burma sanctions will take effect after a formal meeting of EU foreign ministers
on April 23.

The EU sanctions
legislation gives its administering authorities great flexibility, such that a
temporary suspension is possible. This contrasts with the US Burma sanctions
legislation, which is complex and far less flexible. In fact, the EU approach
may be more optimal, as sanctions can be
reimposed immediately should difficulties remain, and can be lifted permanently
with sufficient progress in the country.

Myanmar is
also suspended from the EU’s Generalized System of Preferences trade
program. This suspension is expected to
be lifted in June, when a report on forced labor in Myanmar is due.

Earlier this month the ASEAN
finance ministers signed a new ASEAN Customs Agreement, which supersedes the 1997 ASEAN Customs Agreement. I’ve had a chance to review the 2012
Agreement and comment as follows:

1.Article 3 states
that the Agreement applies to “goods being
imported into, exported from, in transit through, or trans-shipped through the
territories of Member States in accordance with their respective laws and
regulations.” In other words, its provisions
cover all goods, whether or not originating in ASEAN (e.g., qualifying for
preferential treatment under the ASEAN Trade in Goods Agreement).

2.Article 7 states
that “Member States shall ensure
that customs controls are limited to such extent as to ensure compliance with
their respective customs laws.” Customs
controls refer to “inter alia, control of
the movement of goods; examination of goods; taking of samples; verification of
declaration data and the authenticity of documents; examination of the
accounts; books and records of economic operators; inspection of means of
transport, luggage and other goods carried by or on persons; and carrying out
of official enquiries. “ This has
been a controversial issue in ASEAN, as some ASEAN national customs authorities
have used customs controls as a non-tariff barrier to trade. For example, in
some ASEAN countries it can take many months to get a sample taken and approved
by local customs authorities.

3.Article 9 sets forth formal and substantive
requirements for goods declaration. There have been frequent disputes among
ASEAN member states regarding the Form D
origin document and other documentation.

4.Articles 10-12 provide for electronic submission of
declarations, where authorized by national customs authorities.

6.Article 20
explicitly adopts the WTO Customs Valuation Agreement as the basis for
determining customs value in ASEAN. Notably,
the 2012 Agreement does not contain the 1997 Agreement’s directive that “Member States shall not use Customs valuation for protective
purposes or as a barrier to trade.”

7.Article 27 commits ASEAN member states to use a risk
management approach to customs. Customs
agencies in developed countries use risk management techniques such as
sampling, intelligence gathering and data analysis to subject “at risk” imports
for further scrutiny and facilitate trade for the others. Some ASEAN national customs authorities have
had a reputation for the traditional “gatekeeper” approach which subjects all
shipments to the same level of scrutiny.
Article 27 hopefully brings them closer to modern standards.

11.Articles 42-45 provide for mutual assistance among ASEAN
national customs authorities. The
provisions specify that they shall cooperate to extent possible, but “if the assistance sought would infringe upon
a Member State’s sovereignty, security or other substantial national interests
or prejudice the legitimate commercial interests of any enterprise, public or
private, the customs authorities of the Member State may decline to provide
that assistance or give it subject to certain conditions or requirements.” Hence the 2012 Agreement encourages
cross-border customs cooperation, extending it to areas such as IP and
narcotics control, but preserves the right of ASEAN national customs
authorities to reject cross-border cooperation.

12.Article 48 requires ASEAN national customs authorities
to designate an official enquiry point and to publish laws and regulations on
the internet.

13.Article 52 preserves the right of administrative and
judicial appeal of customs decisions.

15.Article 58 provides for confidentiality in the
administration of the 2012 Agreement.

The 2012 Agreement is now being considered by the ASEAN Member States
for ratification.

These are significant steps towards full implementation of the ASEAN
Economic Community. However, as with all ASEAN agreements, its effectiveness
will depend on its implementation, particularly on cross-border cooperation and
dispute resolution. Without effective
cross-border cooperation, an intransigent ASEAN national customs authority can
create problems for supply chains. Without effective dispute resolution (not
necessarily requiring arbitration), that same national customs authority can
continue to create problems indefinitely. Remember that the only WTO dispute settlement
panel between two ASEAN members, the Philippine complaint against Thailand on
cigarettes, involved customs issues.
Hopefully the 2012 Agreement will mean that future disputes can be
avoided, and when they do arise, they will be handled by ASEAN and not through
extra-ASEAN legal norms and forums.

(1) Projects to meet basic human needs in Burma, including, but not limited to, disaster relief; assistance to refugees, internally displaced persons, and conflict victims; the distribution of food, clothing, medicine, and medical equipment intended to be used to relieve human suffering; the provision of health-related services; and the provision of shelter, and clean water, sanitation, and hygiene assistance;

(2) Democracy building and good governance in Burma, including, but not limited to, rule of law, citizen participation, govemment accountability, conflict resolution, public policy advice, and civil society development projects;

(3) Educational activities in Burma, including, but not limited to, combating illiteracy; increasing access to education at the elementary, high school, vocational, technical, college, or university level; foreign language instruction; and assisting education reform projects at all levels;

(4) Sporting activities in Burma, including, but not limited to, amateur sporting events, activities promoting physical health and exercise, and the construction and maintenance of sports facilities open to the Burmese public;

(5) Non-commercial development projects directly benefiting the Burmese people, including, but not limited to, preventing infectious disease; promoting maternal/child health, animal husbandry, food security, and sustainable agriculture; conservation of endangered species of fauna and flora and their supporting natural habitats; and the construction and maintenance of schools, libraries, medical clinics, hospitals, and other infrastructure necessary to support the aforementioned non-commercial development projects; and

(6) Religious activities, including, but not limited to, religious education and training, including the training of missionaries; the establishment and maintenance of congregations; and the construction and improvement of houses of worship, schools, seminaries, and orphanages.

Notably, OFAC still maintains the general prohibition on financial transactions related to commercial investment activities in Myanmar. For example, the restrictions on the use of credit cards, a major practical difficulty to traveling to Myanmar, still stands.

However, I believe that this relaxation could allow not-for-profits which promote "good governance" issues such as corporate social responsibility, rule of law, government accountability, etc., to go into Myanmar. This could include the American Bar Association or the American Chamber of Commerce. We can expect American entities to start following their EU and Australian counterparts on the plane to Yangon soon.

The relaxation reduces the
number of individuals subject to financial and travel sanctions from 392 to
130. Those removed from sanctions were
civilian government officials.

The Australian government
also ended its policy of neither encouraging nor discouraging trade with
Myanmar. This means that the Australian
government will have a more active role in trade, such as in the AANZFTA Work
Programme. Australia will maintain its
arms embargo against the Myanmar regime.

The first go at co-operation, the Chiang Mai
Initiative of 2000, was to expand and formalise a network of bilateral swap
agreements between central banks, under which they promised to provide each
other with liquidity. This was accompanied by a “dialogue” on economic policy,
which, as one participant puts it, amounted at best to no more than
information-sharing, at worst to a “beauty contest”, with a lot of cosmetic
data-enhancement.

In 2010 the 13 countries “multilateralised”
the CMI, ie, turned it into a formal arrangement binding them all. Because the money remains in the individual
central banks, the CMIM is a set of promises not a fund.

(emphasis added) Indeed, the
absence of formal legal structure in the CMI is a fundamental problem that the
ASEAN+3 nations are attempting to address.
The Economist goes on to note
that that even the increased funding of US$ 240 billion would be insufficient
in a future emergency:

Each CMIM country has access to the amount
it has committed times a multiple (five for poor countries, 2.5 for the
better-off ASEAN members, one for South Korea and 0.5 for China and Japan). So for Thailand and Indonesia, for example,
$11.4 billion is available. Compare that with their respective bail-outs in
1997 and 1998 of $17.2 billion and $42.3 billion (equivalent, in 2012 dollars,
to $24.4 billion and $59.1 billion). Or compare it with Europe’s bail-out
funds, worth several hundred billion dollars and still criticised for being too
small.

The Economist goes on to note that the CMIM, intended as a substitute for
the International Monetary Fund (IMF), itself imposes IMF-related restrictions
on its use:

Unless
a country subjects itself to an IMF programme, it may draw on only 20% of the
available liquidity from other central banks. The proportion will be increased,
but only to 30% this year and 40% from 2014. Countries that see themselves as
potential crisis-victims want to shake off the fund’s shackles. Potential creditors
find them rather comforting.

I’m reminded of those B-movies that kick off
with a shot of the protagonist – in this case, he’s at the launch of the Asian
Bond Markets Initiative back in 2003 (yes, that long ago), when APT finance
ministers came up with a plan to recycle Asia’s hefty savings in Asia rather
than in the West through the development of efficient and liquid bond
markets. Next, our hero goes into an
unexplained coma and, then, miraculously wakes up nine years later to complete
the guide he had been working on, as if nothing has happened in the
interim. That’s not far from the truth,
because really nothing much has happened since then.

The IFR then goes on to note why the Guide will be helpful but does not
represent a major advance in regional financial cooperation:

Although it is a very useful reference, I
doubt the guide will change anything in and of itself. It covers (in detail)
market infrastructure; transaction flows, settlement cycles, and numbering; as
well as information about the regulatory framework and market practices in 11
jurisdictions. It’s all very worthy. It’s also, in some respects, 1,532 pages
of “So what?”

The [ASEAN+3 Bond Market Forum] wants the
guide to increase investor understanding of regional bond markets, and reckons
it will assist in setting up the Asian Multi-currency Bond Issuance Programme,
which it hopes to introduce before the end of 2013, including possible pilot
bond issuance. Hmmm. Let’s wait and see.

Finally, the IFR concludes that politics is the real
reason for a lack of movement in financial cooperation:

This
is first and foremost a political project. Individual jurisdictions need to
accept that ironing out regional funding imbalances means that surplus nations
will lose some of their savings to deficit nations. That’s the point of a
community. Also, the project needs to be endorsed not just via pan-regional
communiqués at the political level, but by action.

I would agree. In fact, the relatively limited scope of the
CMIM described by The Economist is also
due to a lack of political will within the ASEAN+3 nations. Expanded development of both initiatives
would require much greater regional harmonization of regulations, and perhaps
even a supranational authority to administer or regulate them. The former is
difficult in the region, and the latter is a non-starter in Asian capitals.

The elephant in the room,
however, is which country will fund an expanded CMIM or buy the bulk ASEAN+3
bonds, particularly if the EU is barely out of its crisis (some say still in
it), the US is in a weak recovery (some say headed down again) and Japan is
rebuilding after its earthquake/tsunami/nuclear triple whammy (some say that it
has never really recovered from the 1990s slowdown)? That would be China, which is only slowly loosening
its grip on outbound financial flows to protect its own economy. Even if China were willing to let loose the
flow of outbound capital into bond markets or take the lion’s share of CMIM
funding, would the rest of ASEAN+3 want to be subject to greater financial
influence by China?

Both aspects make it
difficult to see a faster expansion of the CMIM or Asia bond programs.
Nevertheless, long-range planning for monetary crises and financial cooperation
is still better than none. The question is whether the ASEAN+3 countries can
find the will to establish institutions that will channel these competing
considerations in a positive direction.

Many (including me) would have preferred a candidate, in principle, with direct business experience. However, a review of Dr. Lim's background provided here shows that he has 5 degrees in business administration, management and computer science. He also headed investment promotion and facilitation at the Brunei Economic Development Board and trade liberalization at the ASEAN Secretariat. In other words, Dr. Lim is very familiar with the business community.

Also, in his immediate prior position at the Economic Research Institute for ASEAN and East Asia (ERIA), he was working on the next version of the AEC scorecard, one which will go beyond its current quantitative approach (e.g., does this ASEAN member state have a bankruptcy law?) to a qualitative approach (e.g., how well does this ASEAN member state administer its bankruptcy law?). The new AEC scorecard will be critical to ensuring compliance with ASEAN agreements by the member states.

Thus, although we did not get a businessman for the DSG-AEC role, we did get a business-friendly and experienced administrator from a smaller ASEAN member state (Brunei) that is traditionally pro-ASEAN. All in all, a good development.

The US will establish a
USAID office in Myanmar, which should allow USAID funds for ASEAN support
projects such as the ASEAN Single Window (which had been blocked) to be spent
in the country. This is critical as the
country becomes ASEAN Chair in 2014, with responsibility for the ASEAN Economic
Community.

The US will support a normal
country program for the UN Development Program.

The US will allow private
organizations to support non-profit activities such as democracy building,
health and education. Presumably this could include education on economics and
business, so we can expect US business organizations to start arriving on
educational missions to Myanmar soon (their EU and Australian counterparts are
already doing this).

The US will allow certain
Myanmar regime officials to visit the United States.

The US will begin a review
of its ban on the export of financial services and investment to Myanmar. The US State Department said that priority
would be given to investments in agriculture, tourism and perhaps
telecommunications, but not investments in minerals and other natural resources.
The financial services ban currently has the highest priority for US businesses
and individuals. These sanctions prevent any direct financial transfers to the
country, making the use of credit cards, for example, impossible. As US competitors are not subject to such
restrictions (such as the EU), they have been filling up Myanmar-bound flights
and Yangon hotels.

Understandably, unwinding
the US Burma sanctions will take quite some time, due to their sheer
complexity. For example, under current
sanctions, US officials cannot fly from Yangon to Naypyidaw because the only
airlines available are linked to entities covered by the sanctions (and so they
must spend the better part of the day in car motorcades to get up to the
Myanmar capital). The expected “safe harbor” announcement by the US government of
what can and cannot be done in Myanmar cannot come soon enough.

However, the prospects of
making immediate returns on the country are relatively small, and the universe
of Americans with practical experience in the country even smaller. US companies looking to go to Myanmar just
want to get a first hand view of the investment conditions, not necessarily
invest immediately. The most relevant
comparison would be Vietnam; the initial US investors in Vietnam in the early
1990’s had heavy losses, but those who toughed it out are doing quite well
now. As we can expect Myanmar to be not
so different, ending more stringent sanctions such as on the importation of
Myanmar-origin goods are of lesser priority than relaxing those which make it
impractical even to get on a plane to Myanmar.

Ironically, the NLD’s great
electoral success on April 1, which motivated this partial relaxation by the US
and others, may negatively impact foreign investor sentiment. It raises the spectre of a backlash by
hardliners in the Myanmar regime, as well as raising doubts about whether any
deals made with the current government will stay in place after a 2015 election
in which the NLD is more likely to take over.

All of this makes the next
few months critical both in the international community as it relaxes the Burma
sanctions, and within Myanmar itself, as President Thein Sein and Aung San Suu
Kyi try to lay down a new operating framework for the country that will satisfy
both Myanmar regime hardliners and opposition activists who have been waiting
so long for real change. In any event,
both processes will take time, but the US and other Western countries can and should
take expedited and cautious steps to support this reform.

At the top of the hierarchy would indeed be
ratified agreements such as the ASEAN Charter, ASEAN Trade in Goods Agreement
and ASEAN Comprehensive Investment Agreement.
As ratified agreements, they are binding under international law, with relevant
avenues for dispute resolution should an ASEAN member state not comply with
their terms. In other words, these
agreements are sufficiently vital to ASEAN that the member states want them to
be legally binding on a continuing basis and not easily subject to later
revision or revocation (see below).

ASEAN members have other agreements that may or
may not be ratified under their domestic procedures. Ostensibly an agreement
signed by the prime ministers of Malaysia or Singapore, which follow a Westminster
parliamentary system, could be conceivably be viewed as international
agreements. However, that would not be
the case for the Philippines, where the issue of Senate ratification arises
almost every time the Philippine president signs an international
agreement. Thus, one could not view such
unratified but signed agreements as binding under international law.

However, I do think that such agreements still have binding force as ASEAN
commitments. Article 7.2(a) of the ASEAN
Charter states that the ASEAN Summit of national leaders is “the supreme
policy-making body of ASEAN.” Hence
decisions and agreements made at the ASEAN Summit represent the final word on
ASEAN matters – that is, until the ASEAN Summit decides otherwise at a later
meeting. That would mean that unratified
but signed agreements are binding as ASEAN commitments but are subject to later
amendment or revision. This is not different from what happens in all forms of
government, where the state makes policy decisions which can, and often are, later
revised or amended. In either case,
unratified but signed ASEAN agreements can be invoked by other ASEAN member
states.

There are even more agreements and declarations
made at the ASEAN Coordinating Council, the ASEAN Economic Community Council,
and the various ASEAN ministerial bodies. What is the relative legal value of
those agreements? Well, there seems to
be a sentiment within ASEAN (including with some in the ASEAN Secretariat) that
such agreements, if signed off at the ministerial level or otherwise backed by
the authority of the ASEAN national leaders, would also be viewed as having
some legal force. In other words, if the political leadership of an ASEAN
member state has directly authorized its minister to make a commitment to the
other ASEAN member states, then that commitment has legal value in determining
rights and obligations within ASEAN. That
commitment may not have as much weight as one signed off by the national
leaders, and it may be subject to later revision, but it still has some weight. This organic approach is consistent both with
the structure of the ASEAN Charter and political realities within the region:
all lines of authority go back to the national leadership of ASEAN.

Finally, there are agreements and commitments
made by non-political officials such as the Senior Economic Officials Meeting
or at the various committee levels of ASEAN.
Based on the foregoing, these agreements and commitments should be
viewed as the lowest rung of the legal hierarchy, as they do not have such
explicit endorsement by the ASEAN national leadership. They are useful for
understanding how the ASEAN member states are administering and implementing
their AEC commitments, but they should not be viewed as establishing binding
obligations on ASEAN member states. Nevertheless,
as they are useful for investors to understand the administration of the AEC,
it would be beneficial for ASEAN to make these agreements and commitments
publicly available, as is the case for documentation coming out of the ASEAN
Summit, Councils and ministerial bodies.

The foregoing hierarchy of legal norms is
admittedly not as clear-cut as would be the case in more mature systems like
that of the EU or the US. But it is
still early days for the more formalized rule-based system introduced by the
ASEAN Charter, so we should give ASEAN time to flesh these and other legal
issues (such as how domestic courts and institutions in ASEAN member states
should apply these agreements and commitments).
Ultimately, the AEC needs a transparent and comprehensible legal system
in order to attract investment into the region.

Wednesday, April 4, 2012

The first of two ASEAN Summits to be held in
Cambodia this year concluded today. As expected, the major headline was the ASEAN leaders’ call for an immediate
end to Burma sanctions imposed by the West against Myanmar. Given the size of the victory in the April 1
elections by Aung San Suu Chi’s party, there will be intense pressure on the EU
to relax sanctions in its annual review due later this month. However, the somewhat more skeptical US will
likely take at least a year to relax sanctions, due to the need to have the US
Congress approve such actions. In any
event, it may be advisable to move carefully in case hardliners in the Myanmar
regime decide to roll back on reform. Nevertheless, it appears that Myanmar has
taken another step forward.

The other major headline was the naming of Le
Luong Minh as ASEAN Secretary General-designate, which we reported on yesterday.

ASEAN leaders also said that they would aim to start negotiations with ASEAN trading partners under the ASEAN Framework on Regional Comprehensive Economic Partnership by the November 2012 ASEAN summit in Cambodia.

ASEAN foreign ministers signed the Instrument of Incorporation of the Rules for Reference of Non-Compliance to the ASEAN Summit to the Protocol to the ASEAN Charter on Dispute Settlement Mechanisms. This document allows the Protocol to become legally operational, after it is ratified, and provides for dispute resolution on non-economic matters.

ASEAN transport ministers signed the Protocol to Implement the 7th Package of Commitments on Air Transport Services under the ASEAN Framework Agreement on Services (AFAS).

ASEAN finance ministers signed a new ASEAN Agreement on Customs that will further encourage cooperation among customs officials in the region (we’ll have more on this after we get a full text).

Tuesday, April 3, 2012

This morning ASEAN Secretary General Surin Pitsuwan confirmed that Vietnam's Deputy Foreign Minister Le Luong Minh has been nominated as the next ASEAN Secretary General. “ASEAN welcomes the designation of the Vice Minister of Vietnam as the next Secretary General and I feel relieved already," according to VietnamNet. I have commented on Mr. Minh's considerable strengths here.

Mr. Minh will be formally presented to ASEAN leaders at the November 2012 ASEAN Summit in Phnom Penh and will take office in January 2013.

About Me

I am an American international trade lawyer and partner in the trade boutique firm Appleton Luff. I also teach the first course on the law and policy of the ASEAN Economic Community, at National University of Singapore law school and have served as an adviser to the ASEAN Secretariat and various ASEAN government ministries.

My Upcoming ASEAN Events

US-Malaysia-ASEAN Outlooks on Malaysia as ASEAN Chair and Realization of the ASEAN Economic Community and Regional Comprehensive Economic Partnership in 2015, American University ASEAN Studies Center, Washington, Dec. 1, 2014